What's Behind SpaceX's $ 74 Billion Valuation: Elon Musk's Two "Manhattan Projects"

Elon Musk's SpaceX is now valued at $ 74 billion after raising more capital last week. With strong demand for stocks, many investors believe the company's two ambitious projects will add to this valuation even further.

The company's valuation rose 60% from the previous capital increase six months ago. In SpaceX's most recent fundraising round, the company received $ 6 billion in offers from investors in just three days, a well-known source told CNBC. The company accepted $ 850 million from these offers.

Investor demand comes from the Starship and Starlink projects, said Quilty Analytics founder Chris Quilty, which he described as "two parallel Manhattan projects". Quilty runs a boutique satellite communications research and investment firm that he founded after leading Raymond James' coverage of the space industry for 20 years.

Starship is the next generation rocket that Musk's company is developing. It is more powerful than even the Saturn V rockets that transported astronauts to the moon. Starlink is a global satellite Internet network made up of thousands of satellites and is increasingly being used by SpaceX to provide high-speed Internet for customers.

Top Wall Street and industry analysts spoke to CNBC this week to explain the excitement surrounding SpaceX's Starship and Starlink programs.

"This assessment is based on a vision of what SpaceX can achieve in the future," Carissa Christensen, CEO of Bryce Space and Technology, told CNBC. "Your valuation is very high because the commercial launches market is measured in billions of dollars – not tens or hundreds of billions – so you need to turn to Starlink too."

SpaceX CEO Elon Musk stands at the base of a prototype Starship rocket at the company's facility in Boca Chica, Texas.

Steve Jurvetson on flickr

While investors may have a seemingly high valuation of $ 74 billion, Ark Invest analyst Sam Korus believes it is possible that SpaceX will grow into a trillion dollar company itself.

"I honestly don't know of any company in the industry that is moving at SpaceX's rate of innovation," Korus told CNBC.

How Starship is changing the startup paradigm

Starship's SN9 (right) and SN10 prototype missiles on launch pads at the company's development facility in Boca Chica, Texas.

SpaceX

SpaceX "rocked" the global market with the low cost and unprecedented launch rate of its Falcon 9 rockets, said Jefferies analyst Greg Konrad. Reusing the Falcon 9 rocket boosters, which SpaceX landed 67 times, was critical for SpaceX, both keeping costs down and launching quickly.

Historically, missiles that launched satellites and other large spaceships were dispensable – with boosters being thrown away after each launch in the ocean. Konrad stressed that the lower cost of SpaceX rockets "has created new opportunities for what you can launch and in which markets," and other companies are currently working on rocket reuse.

"New competitors like Blue Origin are creating this entire ecosystem of launcher vendors serving the lower end of the market with cheaper solutions," Konrad said.

But SpaceX wants to take an even bigger step with Starship. Musk aims to make Starship fully reusable – not just the booster that represents the bottom of the rocket – by landing and restarting in a similar fashion to a commercial airliner.

The starship and its booster are nearly 400 feet tall and offer more capabilities than any rocket before to accomplish Musk's goal of launching up to 110 tons of cargo at a time.

"Some of the possibilities that we cannot necessarily imagine today, because the space on the side of the heavy goods will then be much cheaper," said Konrad.

SpaceX has not yet reached orbit with a Starship rocket, but is quickly building and testing prototypes at its facility in Boca Chica, Texas. The company has successfully launched several Starship prototypes and safely landed them after short flights at an altitude of approximately 500 feet.

Despite several development milestones, the two most recent high-altitude flights exploded on impact during landing attempts. SpaceX has not yet announced how much it has spent on the Starship program to date, but Musk previously estimated that the company is expected to cost about $ 5 billion to complete.

Despite the explosive end to its recent flights, Morgan Stanley analyst Adam Jonas reiterated the company's belief that every Starship test is an exciting step forward.

"Find a cooler thing than watching a rocket this size take off and land either successfully or unsuccessfully. It's wild," Jonas said. "It's like the Apollo era 'real stuff'."

The spaceship also represents the departure from the norm of developing a rocket "in close harmony" with the satellites it wants to launch, Christensen said.

"That means you won't develop a satellite that doesn't have an obvious launcher," Christensen said. "Starship is really a significant step beyond what is easily predictable."

While a Falcon 9 rocket is advertised at a price of $ 62 million, according to SpaceX, operating costs are $ 28 million per launch. But Musk claims that making Starship fully reusable would cut its cost-per-launch to just $ 2 million and reduce the cost of going into orbit "by an order of magnitude or even further," which is a ten-fold reduction .

The Starship prototype SN9 starts at the company's development facility in Boca Chica, Texas.

SpaceX

According to Christensen, SpaceX has captured a majority stake in the US launch market in recent years, with Falcon 9 taking "a bigger slice of an existing pie".

"I think Starship's vision is to help grow this cake, whether it's building spacecraft that are bigger or differently designed," Christensen said.

The other benefit of Starship's immense size would be the expansion of SpaceX's ridesharing capability when rockets carry additional satellites with their primary payload. Starship would have enough additional space "so that the secondary payloads can pay for the launch," said Jonas, effectively subsidizing the launch of the company's Starlink satellites.

In addition to transporting cargo, SpaceX plans to use Starship to put people into orbit and even to the surface of the Moon and Mars.

"There may also be a manned space-related market that has historically been driven almost entirely by state budgets," Christensen said. "There is a commercial market for human tourism in space and we are just beginning to see it."

While a four-passenger flight into orbit on SpaceX's Crew Dragon capsule would cost more than $ 200 million, Starship would "open up incredible possibilities," believes Korus.

"Because it's reusable, you can think of trips around the moon in the range of $ 100,000," said Korus.

Why investors are excited about Starlink

The contents of the Starlink customer kit, which includes the satellite dish, stand, power adapter, and wireless router.

SpaceX

Jonas asked an open question about SpaceX's amibition with Starlink given the way Musk's Tesla disrupted the automotive and battery sectors.

"Will Elon do with telecommunications what he did with cars and batteries?" Asked Jonas.

Starlink is expected to be even more expensive to develop than Starship's. Previously, SpaceX was a leader in satellite network and consumer services development and will cost at least $ 10 billion.

SpaceX has launched more than 1,000 Starlink satellites to date. The company plans to deploy 4,425 satellites in orbit by 2024 to serve customers around the world.

The company began offering early Starlink service to customers in the US, Canada and the UK through a public beta in October. Recently, the scope of this public beta has also been expanded to allow potential users to pre-order the Starlink service for $ 99.

Despite the heavy investment required to build Starlink, management estimates that Starlink will cost at least $ 10 billion to build, but the network could bring in up to $ 30 billion a year – or more than that Ten times the annual sales of its existing missile business network. Satellite communications are one of the most important sources of revenue in the space industry.

"There's already an established market … so Starlink is trying to get into that market," Christensen said. "But it's still an unproven question of whether Starlink can be successful, even though that's a big part of SpaceX's evaluation."

Sixty Starlink satellites will be launched after the company's 17th mission.

SpaceX

Musk is aware of the risk SpaceX is taking with Starlink and has discovered several times over the past year that every previous low-earth orbit broadband satellite network has gone bankrupt.

"SpaceX will have to cross a deep negative cash flow gap over the next year to make Starlink financially viable," Musk said in a tweet earlier this month.

Quilty estimates Starlink needs to sign up a million or more users per year "in order to achieve the economies of scale necessary to cut costs that become economically feasible".

"It's all about volume," Quilty said. "Part of what Starlink is up to is that Elon is a fundraising machine."

However, analysts agree that Starlink has the potential to generate multiple times the revenue of SpaceX's rocket business. Christensen noted that telecommunications is a multi-trillion dollar market worldwide with a growing demand for mobile Internet access. It's also "more familiar to investors," Christensen said, "so there's a certain level of appeal there and it's clearer to understand."

Ark Invest cited satellite internet as one of its "big ideas" for investors in 2021, with Korus estimating that Starlink has an addressable market of $ 10 billion per year in the US alone and $ 40 billion per year worldwide .

"It's on a budgetary basis and it only increases when you talk about business, and we've heard governments are very hungry for Starlink's capabilities," said Korus.

The space market

SpaceX founder Elon Musk shows the audience after he was recognized by US President Donald Trump in NASA's vehicle assembly building after successfully launching a Falcon 9 rocket with the Crew Dragon spacecraft from Pad 39A at the Kennedy Space Center

Paul Hennessy | SOPA pictures | Getty Images

Jefferies & # 39; Konrad also stressed that there are a limited number of pure space companies that investors can trade with in the public markets. This created "a greater appetite among investors for companies with a higher growth percentage".

"There is an insatiable appetite to invest in space-related businesses, and in relation to what space travel could be, this is a relatively untapped market," Konrad said.

The space economy has grown steadily and is currently valued at more than $ 423 billion. However, several Wall Street companies estimate the market will be more than $ 1 trillion by the end of the decade.

Jonas also highlighted the limited number of investment options as a catalyst for SpaceX. The company has a dominant position in the industry and, according to Jonas, Starship and Starlink "can touch a number of markets that could be the largest TAM (Total Addressable Market) in the world or one of the largest TAMs in the world" "

Overall, Christensen believes Musk brought a "Silicon Valley mindset" to an industry that had been dominated for decades by defense-focused government companies.

"The simultaneous takeover of several exceptionally ambitious projects is very well aligned with the corporate identity of changing not just an industry, but also the world," said Christensen.

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